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Guide: Business Incubators – The Two Sides of a Coin
Business incubators have become crucial for the entrepreneurial ecosystem of a country. The idea of providing the workplace of start-ups with basic facilities, personal assistance, and a chance to look for potential investors, originated from the US in the late 1970s. However, this brainwave was quickly picked up up all over the world, and nowadays no metropolis is without incubation centers.
Like the The startup culture grows with the passing day, as does the popularity chart of business incubators. Aspiring entrepreneurs often prefer the more sophisticated ones well paved road that incubators apparently lay ahead of them instead of taking the road less traveled – bootstrapping.
Some start-up companies join the business incubator bandwagon just because it’s a la modeBut must I remind you that business ideas are not developed overnight and even if you have a solid business idea, it takes a lot to get your idea into the application. So, you wouldn’t weigh different aspects of business incubators to see if they are really worth the hype?
I have wrote this writing up using a “two sides of a coin” approach, in which I’ll highlight both the pros and cons of business incubators, that’s how it would be entrepreneurs can make an informed decision about their baby businesses.
The good stuff
The basic concept behind business incubators is to facilitate new business initiatives from idea to implementation. It’s a very unique kind of institution like that offers its members many advantages, some of the most important are as follows.
Facilities and services
Probably the most sought after feature of business incubators is the range of facilities you can get. From support in some important areas such as dealing with legal issues, preparing contracts, copyrights and patents, to secondary aspects such as a good office space and access to comparable resources, business incubators provide you with a fully featured launch pad.
Basically, when you start a new business, that too for the first time, you appreciate any help you can get to reduce overhead costs and avoid pitfalls as much as possible. And incubators, on sharing their resources and experience with you, help you with that.
Gateway to financing
Unless you have a ton of money at your disposal or your friends are generous enough to invest in your idea, your startups will always need capitalA major benefit you get from incubators is the ability to attract financing or investment for your business
Most business incubators operate in a way that they do organizing public events in which aspiring entrepreneurs hold elevator pitches about their business ideas for investors or venture capitalistsThe ideas in which the investors see some potential are shortlisted and are taken up by further caring for the incubators
Some incubation centers have something like this deep connections in the venture capital market, so that they even allow for a second round of investment for growing companies (see Y Combinator’s follow up financing).
Overall, looking for investment is a full-time job, and if the incubators help you overcome that burden, only entrepreneurs need to work with more focus on their goals
Mentorship and networking
When you start a business, you usually don’t have a life to get it off the ground through trial and error, and this is where mentoring comes in. As part of their program, incubators organize seminars and workshops where speakers (usually CEOs, founders or project managers of successful companies) offer you advice for your business and help you with your growth as an entrepreneur.
Likewise when it comes to networkingincubators, which are well integrated into the local business community, are able to provide a large pool of connectionsThese connections can range from people associated with thriving businesses in your particular field, as well as from corporate and trade journalists.
Networking is serious business that, if done right, can help you get appropriate exposure for your fledgling venture what otherwise could be a tough battleback to menu ↑
The rough side
As a famous saying goes, “Nothing interesting is ever completely one-sided”, incubators also have certain drawbacksI will highlight a few in the following.
Strict selection procedure
Emerging economies are inundated with incubation centers and more are added every year. However, there are still hundreds of budding startups whose dreams of being part of an incubator fail miserably especially because of the overly specific incubator selection procedure.
While it makes sense that not every business idea is a work of genius, the idea remains so reach only those ideas up to the selection ladder which either fall in smoothly make a profit or can provide an attractive acquisition a few years later.
When business incubators go on a cherry picking mission selecting financially lucrative business ideas, there are higher chances that certain humanitarian or socially favorable ideas are discussed (if such ideas do not usually generate much money for the investors).
Invisible pressure and distraction
Participate in an incubation program involves large amounts of invisible pressureWhy, because joining an incubator is almost like joining a college program in which the participants must follow a scheduleparticipate in mandatory meetings or workshops and achieve certain benchmarks
Remember that when it comes to setting up a new business, aside from money and other resources, your time up for a larger part of the total investmentBut if you spend more of this time complying with a reporting routine or participating in activities that you would otherwise be better off with, you (or your incubator) do not please your business
All over the world business incubators are usually located in a metropolisAlthough apparently not something to disapprove of as large institutions are usually located in bigger cities but if you belong to a smaller city accessibility may cause some inconvenience for you to participate in an incubation program.
In short, incubators encourage (and some rather bonded) start-up founders work under one roof for a certain period of time so that they can be checked regularly. In such a scenario, if you are bound to a particular location that is not close to the incubation center location, you must either moving with your whole team or forget the idea of joining the incubator.back to menu ↑
How to choose an incubator?
Don’t worry, I’m not going to hang you out to dry just by pointing out the good and bad sides of this matter. Even with all the benefits and pitfalls, business incubators can prove useful for starting a new business, if, however, you choose wisely.
Do not forget to Keep the following points in mind when you are looking for the right incubator for your startup.
Do your homeworkFamiliarize yourself with each incubator’s reputation, who their investment partners are, the mentors on their panel, the overall curriculum (number of workshops, seminars and meetings), and the companies that have successfully launched them.Don’t set a blind dateThere are a wide range of incubators on the market, from industry-specific or university incubation centers to centers owned by venture capital firms or run by successful companies. Don’t just randomly choose an incubator, but see which kind of incubator suits you and your company best.Know their takeawayIncubators maintain a stake in your budding startup ranging from 2% to 10% or even more in equity. You need to know this before you start the race and make sure that the percentage of equity required by your shortlist incubator fits into your overall business plan.See if the location is manageableIn case certain restrictions prevent you from physically participating in the incubator, try opting for external incubation. It might be a bit reserved as you won’t have in-person support or real office environment, but you may be able to take advantage of their networks, relationships and investor opportunities.
An ideal incubator should not only be able to provide an office space, but also real value to the business idea you have developed so dear to you, and their measure of business success must be more than just external financing. That’s the only way a business incubator will actually benefit you.back to menu ↑
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